View from the Observation Deck

1. State tax collections grew for the 10th consecutive quarter (y-o-y) in Q2'12 (see chart). Revenues were up 3.2% (y-o-y).
2. Total state tax collections increased by $31.8 billion for the 12 month period ended June 2012 as compared to the 12-month period ended June 2011.
3. Preliminary figures for Q3'12 (July & August) indicate continued growth in state tax revenues. Tax collections were up 8.7%, but September is considered the most important month for Q3.
4. Some analysts remain concerned about the potential for a spike in municipal bond defaults, but it has yet to happen.
5. As of September 2012, the S&P Municipal Bond Index, which tracks $1.37 trillion worth of municipal debt, reported 207 defaults (0.58%) totaling $7.96 billion, according to S&P.
6. Tax-free bond investors funneled $43.1 billion into municipal bond funds in the first nine months of 2012, with $10.0 billion of that amount going to high yield municipal bond funds, according to Morningstar.
7. In our opinion, the winner of the presidential election on November 6th could significantly impact where federal income tax rates go in 2013 and beyond.
8. Higher personal income tax rates on the wealthy could boost the demand for municipal bonds.